R. Dane Rianhard's presentation on the Affordable Care Act; Present for Smith Elliott Kearns & Company at Fountain Head Country Club in Hagerstown Maryland on Tuesday 10/1/2013

1. HEALTH CARE REFORM:
EMPLOYER STRATEGIES FOR 2013 & BEYOND
Presented by: R. Dane Rianhard
15/16/2013

2. 2014 SMALL GROUP MARKET
Products, Pricing & Other Changes
210/1/2013

3. ACA Rating Methodology
Age Rating Standards
• Insurance companies are not allowed to charge an older adult more than three time the rate
of a 21 year old
• States can establish age curve or default to federal age curve
• Federal age bands (0-20, one year bands between 21-63, and 64 and older)
Family Rating Standards
• Number of family members included in rating:
• 1 or 2 parents
• Up to 3 family members under the age 21
• Unlimited dependent children age 21 to 26
• Family premiums are based on the premiums for each family member’s age
and tobacco use
• Only the premiums for the first three children under age 21 contribute toward
the total family premium
• Family rates include per-member rates for dependent children 21 and older
10/1/2013 3

4. ACA Rating Methodology (cont’d)
Geographic Rating Standards
• Premiums may reflect geographic rating areas in the state
• Rating area is:
• Home address for Individual market coverage
• Employer’s primary place of business in the state, for small group
coverage
Tobacco Rating Standards
• Insurance companies cannot charge an individual who uses tobacco
products more than 1.5 times the non-tobacco user’s rate.
• Tobacco rating can vary based on age (e.g. 1.2:1 for those under 35)
• For small employers covered individuals will be able to avoid the
tobacco surcharge by participating in a wellness program
• The rating variation permitted for tobacco use can only be applied to
the portion of the premium attributed to the family member affected.
10/1/2013 4

5. Deductibles
• Maximum annual limitation on plan deductibles is $2,000
single/$4,000 family for non-grandfathered small groups.
• However, coverage will exceed the annual deductible limit if it
cannot reasonably reach a given level of coverage (metal tier)
without exceeding the deductible limit.

6. Essential Health Benefits (EHB)
• Insurance carriers are mandated to make sure your plan provides
Essential Health Benefits (EHB).
• These categories are:
• Ambulatory patient services
• Emergency services
• Hospitalization
• Maternity and newborn care
• Mental health and substance abuse disorder services
• Prescription drugs
• Rehabilitative and habilitative services and devices
• Laboratory services
• Preventive and wellness services and chronic disease management
• Pediatric services, including oral and vision care

7. Complexities of New Contribution Models
Option 1: No contribution
Employer doesn’t elect to make a contribution to employee coverage.
No issues from a CCIIO/EEOC perspective; however, employers must
contribute 50% to employee coverage to receive tax credit subsidies.
Option 2: Flat Dollar Amount Contribution
Employer contributes a fixed dollar amount to each employee’s coverage.
Under the individual rating model, this method would be deemed
discriminatory per EEOC rules.
Option 3: % Contribution vs. a Reference Plan
Employer selects a % contribution versus a reference plan (RP) at the
desired metal level on the SHOP. If the employer selects an alternate
plan, the employee bears the differential premium cost. This is an option
that the FFE will provide and is permissible under the EEOC.
Option 4: Employees Pay the Same Amount
Employer selects a reference plan (RP) for which each employee will pay
the same amount. In this case the employer makes up the difference in
rates through their defined contribution. If the employee selects an
alternate plan, the employee bears the differential premium cost. This is
also an option under the FFE and is permissible under the EEOC.
10/1/2013
Employee Sue Bob
Age 35 55
RP Premium $300 $600
Employer Contribution (%) 50% 50%
Employer Contribution ($) $150 $300
Employee Contribution for RP $150 $300
Alternate Plan Premium $320 $650
Employee Contribution for AP $170 $350
7
Employee Sue Bob
Age 35 55
Premium $300 $600
Employer Contribution $150 $150
Employee Contribution $200 $450
Employee Sue Bob
Age 35 55
RP Premium $300 $600
RP Average Premium $450 $450
Employee Contribution (%) 50% 50%
Employee Contribution for RP $225 $225
Employer Contribution ($) $75 $375
Alternate Plan Premium $320 $650
Employee Contribution for AP $245 $275

8. Sample Age Rating:
Employer Pays Same % Contribution
10/1/2013 8
Employee Member Dependent QHP Age Tobacco Premium Family
Premium
Employer
% Contrib.
Employer
$ Contrib.
Payroll
Deduction
Family Payroll
Deduction
Bob Bob Self HMO 35 N $400 50% $200 $200
Sue Sue Self HMO 55 N $600 50% $300 $300
Tim Tim Self HMO 45 N $500 50% $250 $250
Tim Mary Spouse HMO 45 N $500 30% $150 $350
Tim Joe Adult Dep HMO 22 Y $180 30% $54 $126
Tim Frank Child 1 HMO 18 Y $150 30% $45 $105
Tim George Child 2 HMO 10 N $100 30% $30 $70
Tim Ashley Child 3 HMO 9 N $100 30% $30 $70
Tim Bobby Child 4 HMO 8 N $0 $1,530 30% $0 $0 $971
Fred Fred Self PPO 35 N $450 50% $225 $225
Edith Edith Self PPO 45 Y $825 50% $413 $413
Edith Martin Spouse PPO 45 N $550 30% $165 $385
Edith Betty Child 1 PPO 12 N $110 $1,485 30% $33 $77 $1,100
TOTAL $4,465 $1,895 $2,571

9. Sample Age Rating:
Employee Pays Same $ vs. %
10/1/2013 9
Employee Member Dependent QHP Age Tobacco Premium Family
Premium
Avg. of
Composite
Employee
%
Contrib.
Payroll
Deduction
Employer $
Contrib.
Bob Bob Self HMO 35 N $400 N/A
$483
50% $242 $158
Sue Sue Self HMO 55 N $600 N/A 50% $242 $358
Fred Fred Self PPO 35 N $450 N/A 50% $242 $208
Tim Tim Self HMO 45 N $500
$1,480
$1,415
60% $849 $631
Tim Mary Spouse HMO 45 N $500
Tim Joe Adult Dep HMO 22 Y $180
Tim Frank Child 1 HMO 18 Y $100
Tim George Child 2 HMO 10 N $100
Tim Ashley Child 3 HMO 9 N $100
Tim Bobby Child 4 HMO 8 N $0
Edith Edith Self PPO 45 Y $750
$1,350 60% $849 $501Edith Martin Spouse PPO 45 N $500
Edith Betty Child 1 PPO 12 N $100
TOTAL $4,280 $2,424 $1,856

10. Proposal & Premium Invoice Changes
• Small group proposals must break out premiums for each
employee and all of their dependents (on or off the Exchange).
• Invoices must break out the premiums for each employee and all
of their dependents (on or off the Exchange).
• Invoices must also break out the premium for each employee
and their dependents three ways:
• Total premium
• Employer portion of the premium
• Employee portion of the premium
10/1/2013 10

11. 10/1/2013 11

12. What are Employer Options for those with
Fewer than 50 FTE’s?
1. Renew Early – MIA is issuing cease and desist orders to
carriers, but it is too late.
• Pros
• Cons
2. Self-Funding
• Avoid ACA fees and taxes
• Transparency
• Medically Underwritten
10/1/2013 12

13. What are Employer Options for those with
Fewer than 50 FTE’s? (cont’d)
3. Drop Group Coverage
• Pros
• Cons
10/1/2013 13
Pre and Post Tax Example
Pre-Taxed Post-Taxed
Gross Income $3,000 $3,000
Pre-Taxed Premium ($500)
Taxable Income $2,500 $3,000
Income Tax 40% ($1,000) ($1,200)
Post Tax Premium ($500)
Net Income $1,500 $1,300
Assume minimum tax bracket: 25% Federal, 7.5% State, 7.65% FICA

14. What are Employer Options for those with
Fewer than 50 FTE’s? (cont’d)
4. Purchase Plans with Much Higher Deductibles
• To extent available beyond ACA small group deductible caps
• Supplemented by underlying GAP (mini-med plans in states where
available)
5. SHOP Exchange for tax credits for those groups eligible
10/1/2013 14

15. 2011-2013 REFORM PROVISIONS
1510/1/2013

16. Medical Loss Ratio
• Beginning January 1, 2011, health insurers were required by the
ACA to spend at least 85% of premium dollars received from
policies in the large group market (50+ employees) on a
combination of medical care claims and activities to improve
health care quality.
• Limits the amount that insurers can spend on administrative
expenses, overhead, profit, commissions and other non‐claim
expenses to 15% of premium dollars received.
• Insurance companies were required to pay rebates for 2012 by
August 1, 2013.
1610/1/2013

17. Limit Employee Contributions to Medical
Flexible Spending Accounts (FSA)
• Beginning in 2013, employee salary reduction contributions to
medical FSAs will be limited to $2,500 per plan year.
• Indexed increases allowed in future years to adjust for inflation.
1710/1/2013

18. Provide Written Notice About Health Benefit
Exchanges (Exchanges)
• By October 1, 2013, employers must provide written notice to
current and new employees, to inform them of the Exchanges
and the circumstances under which they may be eligible for
health insurance subsidies.
• In addition, the COBRA Model Election Notice was revised to
inform qualified beneficiaries of coverage options available
through “the Marketplace.”
1810/1/2013

19. Summary of Benefits and Coverage (SBC)
• On or after Sept. 23, 2012, group health plans and health insurance issuers
are required to use standards in compiling and providing an SBC that
accurately describes the benefits and coverage.
• Group health plans must issue an SBC to plan participants and beneficiaries
(including COBRA participants) free of charge in the following circumstances:
• Participants and beneficiaries must receive an SBC for each benefit package offered
under the plan for which they are eligible, no later than the first date of eligibility. The
SBC(s) must be provided with any written application materials for enrollment, or if
there are no written application materials, prior to the first date the employee is
eligible to enroll in the group health plan.
• If there is any change to benefits and coverage between enrollment and the first day of
coverage, no later than the first day of coverage.
• Within 90 days after special enrollment. Special enrollment is when employees and
dependents have the right to enroll in coverage midyear upon specified circumstances.
• Upon renewal of coverage (i.e., annual enrollment), not later than 30 days prior to the
first day of the new plan year.
• Upon request, as soon as possible, but no later than 7 business days following request.
1910/1/2013

20. Summary of Benefits and Coverage (SBC)
(cont’d)
• The regulations provide a two‐part rule for electronic delivery:
• For those already covered under the plan, the employer must satisfy the
Department of Labor’s electronic disclosure regulations. See the following
notice from the DOL: http://www.dol.gov/ebsa/newsroom/tr11‐03.html
• For those eligible but not enrolled, the employer may provide
electronically if the format is readily accessible, and a paper copy is
available free of charge upon request.
2010/1/2013

21. 2014 PROVISIONS
2110/1/2013

22. Employer Mandate
• Mandate is effective January 1, 2014, regardless of grandfathered
status. However, as of July 2, 2013, the Department of Treasury and
the White House delayed the enforcement of the penalties associated
with the mandate until 2015.
• Employers with 50+ full‐time employee equivalents must offer medical
coverage that is “affordable” and provides “minimum value” to their
full‐time employees (and their dependent children to age 26) or be
subject to penalties.
• Employees who work 30 hours per week are deemed full‐time.
• Coverage is affordable if the employee’s contribution of the self‐only
coverage for the lowest cost plan is less than 9.5% of:
• the Federal Poverty Level for a single individual. (2013 ‐ $ 11,490 for single)
• an employee’s box 1 W‐2 wages
• an employee’s monthly wages (hourly rate x 130 hours per month)
• A plan must pay actuarially 60% of the costs of covered health services
to be considered as providing “minimum value.”
2210/1/2013

23. Employer Mandate Penalties
• The penalty for employers not offering any coverage to their
employees is $2,000 per FTE (minus the first 30 employees).
• The penalty for employers offering a plan that is not “affordable”
or does not provide “minimum value” is the lesser of:
• $3,000 per FTE receiving the tax credit for exchange coverage, or
• $2,000 per FTE (minus the first 30 employees).
2310/1/2013

24. Full‐time Employee Determination Definitions
• IRS recognized potential issues with full‐time employee
determination on a month‐by‐month basis.
• Created an optional “look‐back measurement method” as an
alternative way to determine the number of full‐time employees.
• Look‐back method essentially provides safe harbor methods for
determining which ongoing employees, new employees,
employees rehired after a termination of employment and
employees returning to service after certain unpaid leaves of
absence are considered full‐time.
2410/1/2013

25. Full‐time Employee Determination Definitions
(cont’d)
• Measurement Period ‐
• Time period selected by the employer of at least 3 but not more than 12
consecutive calendar months during which the employer determines whether an
employee is considered a full‐time employee based on that employee’s average
number of hours of service per week.
• Stability Period ‐
• Time period selected by the employer that immediately follows, and is associated
with, an applicable measurement period (and any applicable administrative
period, defined below), during which an employee who qualified as a full‐time
employee based on the measurement period is treated as a full‐time employee
(i.e., is “locked into” full‐time status) for purposes of the Play‐or‐Pay mandate’s tax
penalty.
• Administrative Period ‐
• An optional period of no longer than 90 days beginning immediately after the end
of a measurement period and ending before the associated stability period. The
purpose of this period is to allow an employer time to count employees and
coordinate health coverage. The administrative period must overlap with the prior
stability period to ensure that no gaps in coverage occur.
2510/1/2013

26. Full‐time Employee Determination Definitions
(cont’d)
• Ongoing Employees ‐
• Under the look‐back method, an employer determines whether each employee is a
full‐time employee by “looking back” at the applicable measurement period.
• The measurement period applicable to ongoing employees is referred to as a “standard
measurement period.”
• An “ongoing employee” is defined as an employee who has been employed for at least
one standard measurement period.
• The employer may add an administrative period of up to 90 days between the
measurement period and the stability period.
• If an employer determines that an ongoing employee performed on average
at least 30 hours of service per week during a standard measurement period,
then that employee is treated as a full‐time employee during the associated
stability period as long as the employee remains employed—regardless of the
employee’s actual number of hours of service during such stability period.
• The stability period must be at least as long as the greater of six consecutive
calendar months or the length of the applicable measurement period.
• Therefore, even if the standard measurement period is three months, the
associated stability period cannot be shorter than six months.
2610/1/2013

27. 2710/1/2013

28. Automatic Enrollment (200+)
• Delayed until after additional guidance is issued
• Employers that offer coverage must automatically enroll new full
time employees with the opportunity to opt out.
• Until the Department of Labor issues regulations, employers are
not required to comply with Automatic Enrollment in Health
Plans.
• The DOL intends to complete this rulemaking by 2014.
2810/1/2013

29. Nondiscrimination Provisions Applicable to
Insured Group Health Plans
• Delayed until after additional guidance is issued
• In the past, an insured group health plan could provide
non‐taxable benefits to executives and other highly compensated
individuals even if the plan discriminated in favor of those
individuals with regard to eligibility to participate or benefits
provided.
• If, however, self‐funded group health plans discriminated in favor
of highly compensated employees, the benefits for the highly
compensated individuals would be subject to taxation under
Internal Revenue Code 105(h).
• The ACA states that Non‐Grandfathered insured group health
plans will be subject to similar rules as those contained within
Internal Revenue Code 105(h) if they discriminate in favor of
these persons.
2910/1/2013

30. W-2 Reporting
• Employers that file 250 or more W‐2 forms in the prior year will
be required to report the cost of health coverage to employees.
• This amount shows up in box 12 with the code DD.
• Transition relief has been given to those employers filing under
250 W‐2 forms until further notice.
3010/1/2013

31. Waiting Period
• Employers cannot have more than a 90‐day waiting period after
an employee becomes eligible for coverage.
• Waiting periods longer than 90 days must be amended prior to
or at 2014 renewal.
3110/1/2013

32. TAXES AND FEES
3210/1/2013

33. Patient-Centered Outcomes Research Institute
(PCORI) Fee
• For plan years ending on or after Oct. 1, 2012, the Act imposed a
fee on health insurance issuers and employers sponsoring
self‐funded group health plans.
• For fully insured plans, the temporary fee is rolled into the
premium rates and is not called out separately on the invoice.
• The annual fee begins at the rate of $1 per each covered life
(employee, spouse and dependents) per year in the first year,
increases to $2 per covered life per year in the second year and is
then indexed for the remaining five years.
3310/1/2013

34. Insurer Fee
• Will be collected from health insurance providers based on net
written premiums for fully insured groups.
• The annual fee is permanent and expected to total $8 billion in
2014 for all insurers, increasing each year to $14.3 billion in
2018, and indexed to premium trend thereafter.
• Based on the government rule and industry analysis
• Impact on premium is approximately 2.3 percent in the first year,
and will increase to 3 – 4% in future years.
3410/1/2013

35. Transitional Reinsurance Fee
• Will be collected from health insurance providers for years 2014
to 2016.
• Funds are distributed to insurers in the non‐grandfathered
individual market that disproportionately attract individuals at
risk for high medical costs.
• The intent is to spread the financial risk across all health insurers
to provide greater financial stability.
• Based on the government rule and industry analysis, the impact
• for the first year of the Transitional Reinsurance Fee is about $5
to $6 per member per month.
3510/1/2013

36. Risk Adjustment Fee
• Fee of about $1 per member per year is assessed on issuers of
risk‐adjusted plans in the non‐grandfathered individual and small
group markets, whether in or out of the Exchanges.
• The permanent fee helps fund the administrative costs of
running the Risk Adjustment Program.
• The program is intended to protect health insurance issuers of
risk‐adjusted plans against adverse selection by redistributing
premiums from plans with low‐risk populations to plans with
high‐risk populations.
• The Risk Adjustment Fee begins in 2014.
3610/1/2013

37. Medicare Tax
• Will require employers to withhold an additional 0.9% of
employee wages exceeding $200,000.
• While the 1.45% income tax withholding is still in place for all
employees and employers, the new Medicare tax adds an
additional 0.9% on employee earned income above $200,000.
• The additional tax is only assessed on the individual, who is
ultimately responsible for the tax.
• However, employers who do not withhold this additional income
tax will be liable.
3710/1/2013

38. Annual fee on pharmaceutical manufacturers
(2011) and medical devices (2013)
• May increase claim expenses to your plan.
• Pharmaceutical companies that make or import brand‐name
drugs are paying fees that totaled $2.5 billion in 2011, the first
year.
• Companies that make medical equipment sold chiefly through
doctors and hospitals, such as pacemakers, artificial hips and
coronary stents, will pay a 2.3 percent excise tax on their sales.
3810/1/2013

39. “Cadillac Tax”
• Will subject health plans to a 40% excise tax on the value of health
insurance benefits exceeding a specific threshold (2018).
• In 2018, the thresholds are $10,200 for single coverage and $27,500
for family coverage. (Over age 55 or high‐risk professional thresholds
are $11,850 and $30,950 for individuals and families respectively)
• If a plan’s annual premiums for single coverage exceed $10,200, the
dollar amount over that threshold will be taxed at 40% rate.
• For example, if an individual’s annual premiums in 2018 are $12,200 –
or $2,000 over the $10,200 threshold – the Cadillac tax would equal
40% of $2,000, or $800.
• The thresholds may increase depending on actual medical inflation
between 2010 and 2018.
• The health issuer will be responsible for paying this fee if the plan is
fully insured, and will apply to both grandfathered and
non‐grandfathered plans.
3910/1/2013

40. Thank you for joining us
today!
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